New to Crypto? A Beginner’s Guide to Investing in Cryptocurrencies

Cryptocurrency can be an enticing asset for investors looking to diversify beyond traditional stocks and bonds

Cryptocurrency can be an enticing asset for investors looking to diversify beyond traditional stocks and bonds thanks to its potential for long-term growth and use as a hedge against inflation. But while bitcoin, ether and other coins are now often talked about in the same breath as assets like exchange-traded funds (ETFs), it’s important to understand what sets them apart.

Crypto comes with a unique set of challenges

Crypto comes with a unique set of challenges, including volatility, a lack of regulation and a complex taxation system. There are no earnings reports for investors to assess and no central authority backing these digital assets. Prices are driven largely by supply, demand and market sentiment. The world of crypto is also rife with scams — billions of dollars are lost annually to fraudulent crypto schemes.

For first-time buyers, it’s important to understand how crypto behaves

For first-time buyers, it’s important to understand how crypto behaves, how digital assets are held and why the usual rules of investing don’t always apply to this type of asset.

Understanding the basics of crypto

Cryptocurrency is a digital asset that runs on blockchain technology — a decentralized ledger that records transactions across a network of computers. Bitcoin and ether are the most well-known, but thousands of other cryptocurrencies exist, ranging from stablecoins pegged to the U.S. dollar to highly volatile memecoins like dogecoin.

The risks for first-time crypto buyers

Cryptocurrency’s biggest draw is its potential for high returns. But that’s also one of its biggest risks.

What the IRS expects when it comes to taxes

The IRS treats digital assets as property, and several types of transactions trigger taxable events. Selling crypto for cash, trading one coin for another or even using crypto to pay for goods can result in a capital gain or loss.

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